Understanding the Michigan Real Estate Market

In the Michigan Real Estate market, during the great recession of 2008, home values dropped by nearly 50%?!

It’s not totally off the table today, despite the toxic optimism from real estate professionals.  

Is it true that buyers will always buy and sellers will always sell?  Sure.  

BUT no one has clearly explained what is going on in Michigan’s real estate market.

You as a homeowner are going to get three types of answers from a realtor.

1. It’s a good time to buy or sell. 
2. Only buy or sell if you need to.
3. Marry the house, date the rate. 

Which is it?

Neither advice acts as helpful insight.  It’s why people are confused about this market.  

So today, Michigan Realty is going to dive into what’s going on in the Michigan real estate market, and give you insight into the real estate market as a whole.

Read on if you’d like to learn more about the Michigan real estate marketing and the real estate market as a whole. 

Disclaimer: This article is not real estate advice, but designed to help you understand what a realtor is considering when they provide advice.  Preparing you for the tough conversations. 

The Interest Rate Problem.

Not just in our local Michigan real estate market but all markets, interest rate play a huge role in the strenght and weakness of a market.

It should go without saying, that interest rates were at all-time lows over the last couple years. This is one of the many factors that caused a massive appreciation in housing prices, not just in Michigan’s real estate market, but nationally.  People wanted to buy with low interest, and with greater demand and not enough supply…prices went for the moon.

With multiple adjustments from the FED increasing the interest rate this year as a means to fight off inflation, the housing market is now slowing down.

Does that mean a real estate market crash?

Since March 2020, housing prices went up 39%, so a downward correction might seem reasonable.  Although, when you look at the supply of homes, there is still a massive housing shortage.  This creates a demand for housing and if any correction, a smaller one.   

Will it be more than a smaller correction?  In some areas of metro Detroit, some real estate listing prices dropped 10% from summer of 2022 to now.  This downward pressure is caused by the increased cost of money.  Interest rates are rising, and the FED shows no signs of stopping this trend.

The FED Chairman Agrees

Federal Reserve Chairman, Jerome Powell spoke about this on Wednesday, November 2 2022.   “Housing is significantly affected by these higher rates, which are really back where they were before the global financial crisis, “ Powell said during the news conference.  “The housing market was very overheated for a couple of years after the pandemic, as demand increased and rates were low.  The market needs to get back into a balance between supply and demand.” Watch his speech here.

In other words, people’s income didn’t appreciate at the same rate as the house they wanted to buy, and now the cost to buy is even more expensive.  Even if listing prices drop, the interest rates cause the monthly payment to be way too high for the quality & condition of the real estate being purchased.  It’s the ol’ bang for your buck problem.

Prices should and will come down to adjust for this issue.

ANOTHER CONSIDERATION

There is another thing to consider.  As more homes enter the market, the vast majority of those listings will be from people who have owned their house for well over 7 years and need to move.  People who purchased with low interest rates most recently, or people who have paid off most of their mortgage will be holding onto their equity gold mine.

This creates exacerbated pressures on supply and demand, creating even more of a bottleneck on the supply that’s on the market. 

The buyers of these homes that hit the market today are going to be wise to stay in the homes for 7 or more years.  Limiteding homeowner flexibility because of the higher cost of money.  This could create even tighter bottlenecks on the supply of the number of homes listed.  Making the pool of prospective sellers smaller over time.

The Mortgage Bankers Association is reporting that mortgage applications are down to their lowest levels in 22 years.  Buyers are retreating.  Part in hopes that interest rates come down, part in hopes that prices come down.  And they might not.

People aren’t just concerned about the housing market, they are also concerned about global events, bond markets, stocks, energy costs etc.

Summary

So, this is a simplified real estate market analysis:  

-If someone recently purchased a home they aren’t selling because they can’t lose money.

-Sellers after seeing high asking prices in the recent past aren’t happy to have conversations about what their asking price needs to be today.  

-Buyers want their money to go further and are pulling away from the market. 

-The Banks want to make it harder and harder for your dollar to purchase.

As for the Michigan real estate market:

Seller gains are down in Lansing(-7.8%), in Kalamazoo (-7.2%)and in Ann Arbor (-6.1%). 

Seller gains are up in Detroit(+1%), Flint (+6.5%) and Grand Rapids (+5%) in the third quarter.

Some Michigan brokerages are recording -20% in overall sales in September compared to a year previous.  Meaning the number of transactions they’re participating in are down by 20%.

In Michigan, the trend of real estate activity slows down slightly in the winter months too.  

(Pro tip:  Buying a home in the winter in Michigan is when you find amazing deals.  Thank us later.)

Hopefully this article helps you better understand the real estate market here in Michigan and what a realtor is thinking about when they provide you advice.Make sure to follow us on our social media for more amazing content or head back home.